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susanwilliams

Selling and reinvesting the proceeds

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I am considering subdividing 1/2 of my acreage then selling both parcels separately (one has a house on it, which is my primary residence).  I've owned this property for 3.5 years.  Can I reinvest the proceeds from the land in another property and not have to pay taxes on the gain?  I will net approximately 80K on the land that is being subdivided, based on current market rates.  I know that I am beyond capital gains on the house (currently valued at 90k over my purchase price) but wasn't sure how it works when splitting the property and selling both pieces separately.  Both transactions should occur within a 12 month period but may go into 2020 for the next purchase.  Thanks.

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2 hours ago, susanwilliams said:

I am considering subdividing 1/2 of my acreage then selling both parcels separately (one has a house on it, which is my primary residence).  I've owned this property for 3.5 years.  Can I reinvest the proceeds from the land in another property and not have to pay taxes on the gain? 

 

The answer to the literal question you asked is no. Once you sell the property and get the proceeds you realize the gain and reinvesting the proceeds into some other property will not allow you to defer the gain. However, there is a better way to approach this than deferral of the gain. The sale of that vacant lot (once you divide it from your principal residence) may still qualify to be included as part of the sale of your principal residence, allowing you to use the capital gain exclusion under Internal Revenue Code section 121 for both sales. Since it sounds like your total gain here would be less than the $250,000 limit for the gain exclusion, you may be able to cover the gain from both sales. To qualify, you must meet ALL of the following:

 

Quote

 

(A) The vacant land is adjacent to land containing the dwelling unit of the taxpayer's principal residence;

(B) The taxpayer owned and used the vacant land as part of the taxpayer's principal residence;

(C) The taxpayer sells or exchanges the dwelling unit in a sale or exchange that meets the requirements of section 121 within 2 years before or 2 years after the date of the sale or exchange of the vacant land; and

(D) The requirements of section 121 have otherwise been met with respect to the vacant land.

 


Treas. Reg. § 1.121-1(b)(3)(i). While you have two separate sales, for the purposes of applying the gain exclusion rule under § 121 it is treated as though it was one sale — so the maximum gain you may exclude is $250,000 total for both sales. It sounds like your total gain here for both sales would be just $170k given the figures you provided, in which case you may be able to exclude the gain entirely, assuming you lived in that home for the entire 3.5 years you have owned it. 

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